Take advantage of your income, expenses, and debts to reduce your business’s 2022 tax bill

Prepare for Tax Day with year-end tax reduction techniques

Many businesses have had a turbulent year, and the current economic situation foresees even more uncertainty. However, regardless of your company’s performance thus far, there is still time to take actions that can lower your federal tax obligation for 2022. Continue reading about some year-end tax reduction techniques, including taking advantage of your income, expenses, and debts.

Time your income and expenses

The biggest of all year-end tax reduction techniques is deferring income to the following year and accelerating deductions into the current tax year. Remember that this tactic is only appropriate for companies that use cash-basis accounting. You can accelerate deductions, for instance, by paying invoices or employee incentives that are due in 2023 before the year is over or by storing supplies. Additionally, you can put off invoicing until the end of December or the start of January to defer money in the interim.

If you expect your profits to grow little in the future year, you should consider this strategy. Change your plan to accelerate income while deferring deductions to a later period when they will be more beneficial if you expect an increase. Further, lowering your revenue may result in a reduction in your qualified business income (QBI) deduction, depending on the kind of business structure you have.

Get honest about your bad debts

Business owners sometimes take a while to realize that they won’t get compensated for the items or services they provide. However, if you utilize accrual-basis accounting, being honest with yourself may result in a bad debt deduction.

The IRS permits businesses to write off all or part of “worthless” debts that they have previously included in their income. You must demonstrate that you’ve made reasonable efforts to collect the debt but were unsuccessful in proving it is not worthy. If you can show that a court’s judgment would be impossible to collect, you are not obligated to appear in court.

You still have time to take appropriate action to recover unpaid bills. It’s crucial to maintain thorough records of these efforts. You could write off some or all of those debts for 2022 if you decide you can’t collect.

Contact us for year-end tax reduction techniques

The solutions described here and in our previous blog posts entail compromises that require careful consideration, analysis, and evaluation. To reduce the tax burden on your business, contact our RRBB accountants and advisors to assist you in making the best decisions.


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